The nine-strong Monetary Policy Committee had previously voted to keep the base rate at the historic low of 0.5% since 2009.
The Bank of England has changed its interest rate policy for the first time since 2009 cutting the base rate to 0.25%.
The nine-strong Monetary Policy Committee had previously voted to keep the interest rate at 0.5% for a total of 88 months.
The previous rate of 0.5%, announced on Thursday 5 March 2009, was the lowest seen in the UK formore than 300 years.
Benson Hersch, chief executive of the Association of Short Term Lenders, said: “Not everyone will welcome this decision, which was widely expected. The prime beneficiaries will be entities which are highly indebted. Also, exporters will benefit as the exchange value of the Pound drifts lower and lower. As per usual, pensioners will be battered, as ever lower interest rates mean reduced incomes. The housing market is probably not going to be affected – it influenced more by consumer sentiment and general economic conditions. The expectation of future interest rate rises will be dampened, possibly making people more comfortable with long-term affordability issues but hopefully we won’t, like Japan, land up in a long-term low-growth cycle.”
John Phillips, group operations director at SpicerHaart and Just Mortgages, added: "The mix of interest rates being cut and the monetary stimulous package has already sent the market into freefall again and the pound has dropped further as expected, but I expect both to bounce back again. It is hard to see how this will have an effect on new residential rates as they are already at record lows, but it will see many SVRs and base-rate tracker rates falling for the first time in seven years. This will be good news for people getting on the housing ladder however, as there has surely never been a better time to buy with mortgage rates at such incredible lows."
And Richard Pike, Pheobus sales and marketing director, added: “A month after most expected it, the Bank of England interest rate cut comes as little surprise. The effect of Brexit is still something that many are trying to quantify, including the monetary policy committee. However, there were signs before the Brexit result that the economic outlook, in anticipation of an exit, was potentially on a downward trend in some areas. The bank, having today revised growth forecasts down for the next two years, is looking to stimulate the economy with this cut along with other measures.
“Obviously, the new Chancellor will be looking closely at what happens in the coming weeks now that the decision has been made. The Autumn statement will clarify how the Government aims to support the economy into 2017 and beyond, and by then we should know more about the effects of Brexit, which is what need to know as an industry to plan ahead .”
As late as August 2008 the rate stood at 5% before a number of incremental cuts were made by then Bank of England governor Mervyn King.
The base rate took its final step down to 0.5% at a desperate time for the UK economy and as policymakers attempted to stem the rush towards financial depression.
In the previous year-and-a-half before the final cut Northern Rock had been nationalised and the newly combined HBOS and Lloyds and RBS rescued by huge taxpayer bailouts – whilst Lehman Brothers collapsed in the US.
Before the decision to quit the EU the Bank of England had been priming itself to eventually start raising rates.
The Bank has also extended its Quantitative Easing programme pumping another £60bn.
MPC vote to cut #BankRate to 0.25% and for a package of measures designed to provide additional monetary stimulus pic.twitter.com/vyqHCgYork
— Bank of England (@bankofengland) August 4, 2016
The Chancellor, Philip Hammond, has welcomed the Bank's decisions and the expansion of quantitative easing.
I welcome the decision of the MPC today. The vote to
leave EU has created uncertainty which will be followed by a period of
adjustment
— Philip Hammond (@PHammondMP) August 4, 2016
As the shape of new relationship with EU becomes clear
it’s right that monetary policy is used to support our economy
— Philip Hammond (@PHammondMP) August 4, 2016
